China’s Quarterly GDP Accounting Method by Expenditure



Accounting Method for China’s Quarterly GDP

by Expenditure Approach

Introduction

China’s quarterly GDP accounting by expenditure approach started in 2000. First, it was conducted at the national level, both in current prices and in constant prices. Based on the trial accounting experiences for the recent years, Dept. of National Accounts of NBS has improved the accounting method for China’s quarterly GDP by expenditure approach, so that it is basically identical with 1993 SNA in the aspects of accounting scope, accounting principle, item classification and indicator concept.

Since there is not enough fundamental information by quarter, China’s quarterly GDP accounting by expenditure approach is the quarterly accumulated accounting. That is, the accounting period is referred to the period from the beginning of the year to the end of the quarter, which are referred to the followings respectively: the first quarter, accumulation from the first quarter to the second, accumulation from the first quarter to the third, accumulation from the first quarter to the fourth. Increment of the accumulation does not correspond the number that happens in the current quarter exactly, which also includes the adjustment for the previous quarter.

There are three levels of classification for China’s quarterly GDP accounting by expenditure approach. The first level of classification refers to final consumption expenditures, gross capital formation, net exports of goods and services. The second level of classification refers to household consumption expenditures, government consumption expenditures, gross fixed capital formation, increase in inventory, exports and imports of goods and services. The third level of classification divides the household final consumption expenditures into the rural and the urban household consumption expenditures.

China’s quarterly GDP accounting by expenditure approach in constant prices is based on the year of 2000, with a base year shift each 5 years.

Data for China’s quarterly GDP accounting by expenditure approach mainly comes from two channels. One is the statistical survey information, including the overall survey and the sample survey information; the other is the accounting information.

Process of China’s quarterly GDP accounting by expenditure approach is in three steps: initial accounting, initial check and final verification. The initial accounting is conducted 15 days after each quarter, which relies on the following information: monthly and quarterly statistical information from departments concerned of NBS, import and export statistical information from the Customs, implementation condition information of financial budget expenditures, price index information of Chinese foreign trade, etc. The initial check is carried out 45 days after each quarter, which revises the data of initial accounting based on the further collected relevant information. The final verification accords with the statistical yearbooks and the detail information of final accounts of financial expenditures, and utilizes the final verification data of the annual GDP by expenditure approach for the benchmarking adjustment to the quarterly GDP from the initial check through the year, thus forming the final verification data of China’s quarterly GDP by expenditure approach.

II. Accounting Method for China’s Quarterly GDP by Expenditure Approach in Current Prices

Due to lack of fundamental information, China’s quarterly GDP accounting by expenditure approach in current prices is mainly calculated based on the related indicators.

1. Household Consumption Expenditures

Household consumption expenditures refer to the expenditures of resident households on the final consumption of goods and services during a certain period of time. It includes: purchased goods and services, goods and services obtained in the form of payment in kind and in the form of transfer in kind, self-produced goods, the owner-occupied housing services, financial intermediate services and insurance services.

Household consumption expenditures of the initial accounting is calculated from the total retail sale of consumer goods, since the relationship between the total retail sale of consumer goods and the household consumption expenditures is relatively close and steady. First, we calculate the proportion that the total retail sale of consumer goods is in the household consumption expenditures of the previous year. Then, we use the proportion to calculate the quarterly household consumption expenditures.

For household consumption expenditures of the initial check, we calculate the rural and the urban household consumption expenditures respectively, making use of the rural and the urban household survey materials. For the rural household consumption expenditures, as there is only the cash consumption expenditures from the quarterly survey of rural household consumption expenditures, we first calculate the proportion that the cash expenditures of rural household consumption is in the rural household consumption expenditures which meet of the accounting requirements of the previous year, then we calculate the rural household consumption expenditures of the current quarter that meet the accounting requirements based on the above-mentioned proportion. We calculate the quarterly urban household consumption expenditures of the current year according to: urban household consumption expenditures that meet the requirements of the quarterly household survey, and the proportion that the urban household consumption expenditures meeting the requirements of the household survey in the previous year is in the urban household consumption expenditures meeting the accounting requirements of the previous year.

ernment Consumption Expenditures

Government consumption expenditures refer to the expenditures on the consumption of the public services provided by the government to the whole country and the net expenditures on the goods and services provided by the government to the households free of charge or at low prices. It includes two parts: day-to-day professional expenditures, and CFC of the administrative and the non-profit institutional units.

Quarterly government consumption expenditures is calculated according to the quarterly expenditure data of financial budget. First, we calculate the day-to-day professional expenditure of the quarterly expenditures of financial budget, that is, the balance which is equal to the administrative and the institutional expenditures concerned of financial budget minus the expenditures transferred and minus the irregular expenditures such as capital construction expenditure, etc. The concrete ratio is calculated in line with the information from the detail list of the final accounts of financial budget expenditures. Then, according to the proportion that the day-to-day professional expenditures of the budget is in the government consumption expenditures of the same period of the previous year, we calculate the quarterly government consumption expenditures of this year.

For government consumption expenditures of the initial check, since we don’t have the new information, we don’t revise the initial accounting data and use it as the data of the initial check. We revise it at the step of the final verification.

3. Gross Fixed Capital Formation

Gross fixed capital formation refers to the value of fixed assets acquired minus those disposed of by all resident units during a given period. The fixed assets acquired include those purchased, transferred-in and self-produced, and the disposed of refer to those sold and transferred-out. It can be categorized into gross tangible capital formation and gross intangible capital formation. The gross tangible capital formation includes the value of the construction projects, installation projects completed and the equipment, apparatus and instruments purchased (minus those disposed of), the value added from the sale of commercial house, the value of land improved, the value of newly increased draught animals, breeding stock, animals for milk, wool and for recreational purpose, and the newly increased forest with economic value during a given period. The gross intangible capital formation includes the prospecting of minerals, the acquisition of computer software, recreation, literature and art originals minus the disposal of them.

For the initial accounting and the initial check of the gross fixed capital formation, we first calculate the total investment in fixed assets in the whole country of the regular statistics requirements according to the quarterly statistical information of fixed assets. For those not included in the regular statistics requirements, we calculate them as follows:

① For the fixed assets formed by the investment in fixed assets of a small amount that is less than 0.5 million yuan, we calculate them by the related quarterly information.

② For the increased fixed assets of the trial-produce of new products, we calculate them according to the expenses in the trial manufacture of new products on the basis of the expenditure information of the financial budget.

③ For the value added from the sale of commercial house after its being built, we calculate it by using the value added from the sale of that in the same period of the previous year, times the development speed, i.e. the ratio the floor space of commercial house sold in the current period divided by that in the same period of the previous year.

④ Due to difficulty in information collection, for increment of intangible fixed assets, our current accounts only includes the current fixed assets formed by prospecting of minerals and the market-purchased computer software. For fixed assets formed by prospecting of minerals, we calculate it according to the cost of geologic prospecting from the implementation information of the financial budget expenditures. For value of the purchased computer software, we calculate it on the basis of the computer software value in the same period of the previous year and its development speed of sales volume, using trend extrapolation method.

⑤ Value for purchasing the old buildings and the old equipments, and rate for land requisition, land purchasing and the related migration compensation are all counted into the total investment in fixed assets already. However, they don’t add to the fixed assets of the whole country. When we calculate the gross fixed capital formation, we should exclude them from the total investment in fixed assets. While in the quarterly accounting process, due to lack of the basic information, we use the values of these costs during the same period of the previous year and the development speed of these costs during each quarter of the current year, to calculate the values of these costs during each quarter of the current year through trend extrapolation method.

Quarterly gross fixed capital formation of the initial accounting and of the initial check, is equal to the balance of the gross fixed capital formation from the regular statistics plus the Item ① to Item ④ while minus the Item ⑤.

4. Increase in Inventory

Increase in inventory refers to the market value of the physical change in inventory of resident units during the accounting period, i.e. the difference equal to the value at the end of the period minus that at the beginning and minus the current gains due to the change in prices. The inventory includes the raw materials, fuels and reserve materials purchased by the resident units as well as finished products, semi-finished products, work-in-progress, etc. produced by the resident units.

Due to limits of the basic information, the initial accounting and the initial check of quarterly increase in inventory only calculate changes of the industrial finished products in stock and changes of the commodities of wholesale, retail trade in stock.

For increase in inventory of industry, first, we calculate increase in inventory of industrial enterprises above designated size[1] according to the monthly information of main economic indicators of industrial enterprises. Then, making use of the proportion that the value added of industrial enterprises above designated size is in the gross value added of all industrial enterprises, we calculate the increase in inventory of all industrial enterprises.

For increase in inventory of wholesale and retail trade, we first calculate the increase in inventory of enterprises above designated size in wholesale and retail trade[2], according to total sum of the stock at the end of the period from the information of gross commodity sales of wholesale and retail trade. Then, according to the proportion that total value of sales from commodity above the designated size is in the gross value of sales from commodity by all the wholesale and retail trade, we calculate the increase in inventory of all the wholesale and retail trade.

5. Net Exports

Net exports refer to the difference of the exports of goods and services minus the imports of goods and services. The exports include the value of various goods and services sold or gradually transferred by the resident units to the non-resident units. The imports include the value of various goods and services purchased or gratuitously acquired by the resident units from the non-resident units. The value of export and import of goods are calculated at FOB. The value of export and import of services are calculated at market prices of transaction.

Data of net exports of goods and services can be obtained from Balance of Payments directly. However, the time of quarterly balance of payments published is lagged behind, which does not meet demands of the initial accounting and of the initial check of quarterly GDP accounting by expenditure approach. Therefore, we calculate quarterly net exports of the initial accounting and of the initial check by using the statistical data from the Customs, together with the data concerned from Balance of Payments of the same quarter of the previous year. The concrete calculating method is as follows:

First, according to data of the same period of the previous year, we calculate the exchange coefficients between the data of commodities’ exports and imports from the Customs’ statistics and those of goods’ exports and imports from the Balance of Payments.

The exchange coefficient of goods imported mainly reflects the difference between its value of FOB and that of c.i.f. The exchange coefficient of goods exported mainly reflects the error generated by technical treatment.

Secondly, using the exchange coefficients from Step 1, we convert the data of goods’ exports and goods’ imports from the Customs’ statistics calculated in RMB into those identical with the Balance of Payments, thus we get the gross exported and the gross imported of goods and the net exports of goods meeting the requirements of Balance of Payments.

Thirdly, we determine the proportion of goods exported or imported in the export of goods and services or in the import of goods and services during the accounting period. According to the changing trend of the proportion of goods exported or imported in the export of goods and services or in the import of goods and services in each quarter of the previous year, and the changing conditions of this proportion of each quarter in current year, we make adjustments on the proportion of the same period in the previous year, and the adjusted is used as the proportion for the accounting period.

Fourthly, using the proportion of goods exported in the export of goods and services and that of goods imported in the import of goods and services, we calculate the export volume and the import volume of goods and services respectively, and get the net exports of goods and services.

For the final verification of quarterly net exports, we directly adopt the data of imports and exports from Balance of Payments.

We do benchmarking adjustments to the annual final verification data and get the final verification data of China’s quarterly GDP by expenditure approach. The purpose of benchmarking is to revise for the initial value of the quarterly data, so that they can adapt to the new annual data. The adjustment method uses the pro rata distribution method for reference. However, since we have not carried out the accounting work by quarter, we have not done the adjustments as required by the international standards entirely, nor do we consider the step problem generated by pro rata distribution method. Our concrete practice is: Taking the year of 2005 as an example, we make benchmarking adjustments on the quarterly data of 2005 according to composition of the annual GDP by expenditure approach in 2005, that is, we distribute annual data of the final verification to each quarter according to the proportions that the quarterly (accumulated) values of indicators are in the annual data of 2005 before the final verification. In mathematical terms, there is:

[pic]

[pic] refers to the absolute magnitude of the estimated value in Quarter q in 2005 after the adjustment.

[pic] refers to the absolute magnitude in Quarter q in 2005 before the adjustment.

[pic] refers to the absolute magnitude of the annual data of the final verification in 2005.

Letter q=quarter 1, quarter 1 to 2, quarter 1to 3.

III. Accounting Method for China’s Quarterly GDP by Expenditure Approach in Constant Prices

For quarterly GDP by expenditure approach in constant prices, we all adopt the “flop-out” method, deflating components of the quarterly GDP by expenditure approach in current prices using the corresponding price indices respectively.

1. Household Consumption Expenditures in Constant Prices

Data of the initial accounting and of the initial check of household consumption expenditures include those of the rural household consumption expenditures and those of the urban household consumption expenditures. We calculate the urban and the rural household consumption expenditures in constant prices according to the urban and the rural household consumption price indices respectively, using the “flop-out” method.

2. Government Consumption Expenditures in Constant Prices

First, using the proportion that the day-to-day professional expenditures and the CFC is in the annual government consumption expenditures of the previous year as the weight, we conduct weighted average work for the household consumption price indices and the investment price indices of the fixed assets, in order to get the government consumption price index. Then, we get the government consumption expenditures in constant prices from the government consumption expenditures in current prices divided by the government consumption price index.

3. Fixed Capital Formation in Constant Prices

For initial accounting of fixed capital formation in constant prices, we use the investment price index of fixed assets to deflate the gross fixed capital formation.

For initial check of fixed capital formation in constant prices, we use different price indices to deflate the corresponding items respectively. The concrete situation is as follows: For the total investment in fixed assets in the whole country, investment in fixed assets below 0.5 million yuan, fixed assets increased by trial manufacture of the new products and formed by the prospecting of minerals, we use the price index of investment in fixed assets to deflate them. For the value added from sales of commercial houses, we use the sale price index of commercial houses. For the value of computer software, we deflate it by the price index of household services. For value of the purchased old equipment, we use the purchasing price index of equipment, tools and instruments. For value of purchasing old buildings, land and the other rates, we use the price index of the other rates.

4. Increase in Inventory in Constant Prices

For increase in industrial inventory, we use the ex-factory price index of industrial products to deflate it. For increase in inventory of wholesale and retail trade, we use the retail price index.

5. Net Exports in Constant Prices

Gross imports and gross exports of goods in constant prices are calculated by using the import price index of goods and the export price index of goods respectively. We get the net exports of goods in constant prices from gross exports of goods in constant prices minus the gross imports of goods in constant prices. According to the quarterly price indices of the imported and the exported commodities compiled by Customs Bureau, we calculate their simple arithmetic average number, on which we determine the price indices of the imported and of the exported goods.

For the imported and the exported services in constant prices, since there have not been the corresponding price indices at present, we calculate them referring to the import and the export price indices of goods and the price indices of the service items.

IV. Major Issues in China’s Quarterly GDP Accounting by Expenditure Approach

1. The scope of China’s quarterly GDP accounting by expenditure approach is not overall due to the insufficiency of basic information, while the requirements of the basic information is not identical, thus the accounting quality is affected.

Quarterly GDP accounting by expenditure approach needs a great quantity of basic information. However, there exist a considerable number of insufficiencies. For example, information for measuring the imputed consumption expenditures of household owner-occupied housing services, consumption of financial services and consumption of insurance services are all insufficient, they can only be calculated by the related indicators. The financial expenditure information counting the quarterly government consumption expenditures only reflects the financially budgeted expenditures, not including the expenditures of the other items, which covers less scope than of the practical, therefore the foundation for calculating the government consumption expenditures is insufficient. In the meantime, current classification of the financial expenditure accounts is confounding, with expenditure of the same function scattering in different kinds of accounts, that it is difficult for us to adjust the financial expenditure data of administrative and institutional costs to be the information necessary for national accounts, as is not beneficial to calculate the government consumption expenditures. Problems for accounting the fixed capital formation include that formation basis for calculating the investment in fixed assets below 0.5 million yuan, value added from sales of the commercial houses, value of the purchased old buildings, value of the old equipment, and the rates related to land are all insufficient. The basic information for calculating increase in inventory is also deficient.

The report requirements of the current basic information for accounting the quarterly GDP by expenditure approach have not been identical yet. For instance, statistics of investment in fixed assets and statistics of BOP are accumulative from the beginning of the year, and there have not been the data of them by quarter. Affected by this situation, China’s GDP accounting by expenditure approach could not be conducted by quarter at present.

2. Classification of Expenditure Items Is Too Crude.

From point of view of classification, there exist obvious gap between the practice of China’s quarterly GDP accounting by expenditure approach and the demands by the international standard. For quarterly household consumption expenditures, our classification includes just two parts: the urban and the rural household consumption expenditures. For government consumption expenditures, there is only one kind of classification, i.e. the government consumption expenditures, and there has not been more detailed classification for it according to the 1993 SNA. For classification of fixed capital formation, affected by the statistical ways of investment in fixed assets in our country, classification identical with the type of assets of the international standard has not been carried out yet. For net exports, we only specify them as goods or services, without any more detailed classification.

3. Lack of the Price Indices Supporting Quarterly GDP Accounting by Expenditure Approach

When accounting China’s quarterly GDP by expenditure approach in constant prices, there lacks the price indices supporting the classification of expenditure items very much. When calculating the household consumption expenditures in constant prices, we are lack of some price indices of service items in household consumption expenditures. For example, among the deflators of household consumption expenditures, there lack the indices that reflect the consumption for financial and insurance services by households, the indices that reflect the changes of the price of the self-produced, self-occupied and the owner-occupied housing. Thus accuracy of the deflator of household consumption expenditures is affected, so is the GDP deflator by expenditures consequently. For the deflator of government consumption expenditures, we just get it by method of weighted mean through the price index of household consumption and that of investment in fixed assets, which could not reflect the overall conditions of the change of prices of government consumption expenditures. For instance, the change of prices of wage-equivalent expenditure in the government consumption expenditures could not be reflected, however, change of this part is relatively large. Now price indices of the imported and of the exported services have not been compiled in China.

As the above-mentioned, in order to improve China’s quarterly GDP accounting by expenditure approach and its quality so that it can reflect the actual economic growth, it is necessary for us to supplement the insufficiencies of the basic information, to improve the current statistical survey system, to improve and perfect the statistical means and system, to establish the fundamental framework of the price index system and to set up a set of collecting system of statistical information supporting quarterly GDP accounting by expenditure approach.

Reference:

Accounting Method for Quarterly GDP by Expenditure Approach (Trial Scheme)

Zhang, Dongyou & Zheng, Xuegong

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[1] Industrial Enterprises above Designated Size refers to all state-owned industrial enterprises and the non-state-owned industrial enterprises whose annual value of sales from products is bigger than 5 million yuan.

[2] Enterprises above Designated Size in Wholesale and Retail Trade: For the wholesale, it refers to the enterprises with 20 and above shop employees and the annual sales volume of 20 million yuan and above. For retail trade, it refers to the enterprises with 60 and above shop employees and the annual sales

volume of 5 million yuan and above.

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